Citron Research Calls Nio "a Tesla Déjà vu"; Shares Jump 14% Early in Response

Nio closed today at $7.84 per share in New York, while Citron's report said Nio stock has "little resistance on its way to $12 per share."

Selina Cheng
    Nov 19, 2018 4:24 PM  PT
Citron Research Calls Nio "a Tesla Déjà vu"; Shares Jump 14% Early in Response
author: Selina Cheng   

Chinese electric carmaker Nio Inc. (NYSE: NIO) saw its shares jump more than 14 percent in morning trading today after influential investment firm Citron Research called Nio "a Tesla Déjà vu" in a note on Monday.

In a five-page report, Citron claimed that "just like Tesla was not a simple U.S. electric car story, NIO is so much more than just a Chinese electric car story, and NIO's visionary management is revolutionizing the high-end auto industry in China."

After jumping early in the day, Nio closed up more than 9 percent at $7.84 per share in New York. Citron's report, however, said there's still room to grow with the firm's analysts concluding the stock has "little resistance on its way to $12 per share." Led by Andrew Left, the investment firm cited Nio's strong management team, superior product, exceptional brand loyalty, and extremely high short interest for its optimistic outlook.

In Citron's earlier report on Tesla, it claimed that Tesla's strong brand recognition and cult-like customer loyalty were the key elements to its success, and, the firm said, the same situation could be applied to Nio. On the first ever "NIO Day" last December, the company unveiled its ES8 to the public for the first time, and the event received over 110 million views. The 2018 event would be even larger, the report said. 

Citron analysts also conducted multiple interviews with Nio car owners to test the strength of the brand. The three owners gave positive reviews on Nio's new car ES8, and one person even gave the car a "9.9 out of 10" rating. The owner, described as a young professional who works in the entertainment industry, claimed that Nio ES8 had better performance and handling than his previous Audi A8. 

Citron admited in the report that they misjudged Tesla in the past, and missed a huge opportunity. But the firm said it wouldn't make the same mistake with Nio. They believe "NIO is not just a car company, it is a lifestyle and a brand that is ready to disrupt and the implications for the stock price cannot be ignored."

In addition, the report mentioned a popular topic nowadays - the U.S.-China trade war, and Citron said, the trade war was a win-win situation for Nio. 

"If tensions are eased with US and China then NIO stock will increase as confidence will come back to the Chinese consumer and it will rise with the basket of Chinese stocks. However, if no progress is made, NIO is still a relative winner."

Citron Research, largely known for issuing short-selling reports on companies the firm is betting against, has a long history of reporting on Chinese companies. In April, Citron released a report on Hailiang Education Group Inc. (Nasdaq: HLG), saying it "has never seen anything as bad as Hailiang," which caused the stock to drop more than 10 percent in one day. 

While Citron made clear that it believed any investor shorting Nio's stock would be foolish, the firm did not disclose in its report whether it currently held a position in Nio one way or the other.